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| HEALTH, WEALTH, AND HAPPINESS |
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The Bible for Blockchain Investors.
Our book BLOCKCHAIN FOR EVERYONE has been described as the "Bible of Blockchain Investing." Read a sample and find out why. |
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Investors who followed our Blockchain Believers Portfolio were rewarded handsomely in 2020.
If you’re just joining us, we began a do-it-yourself fund called the Blockchain Believers Portfolio in September 2018 (explained here, and in my book). The basic concept is to invest largely in stocks and bonds, with a small slice of the pie dedicated to bitcoin, ETH, and XRP (more on that below).
By investing largely in stocks and bonds, this keeps us from gambling all our money on bitcoin -- which is a huge temptation, as the price soars past $40,000. But it allows us to enjoy some of the upside of bitcoin, in a smart and sensible way.
You can start anytime, and Jan. 1 is a great time to begin this new financial habit. The idea is to invest a little bit each month, preferably on auto-withdrawal from your bank account: a concept we call “steady drip investing” or “dollar cost averaging.” (Instructions on how to set it up here.)
You get the best of both worlds: the stock market and the block market.
Building wealth is like growing a garden: you plant the seeds today to enjoy the harvest tomorrow. Those of you who planted your seeds with us back in 2018 have been rewarded with a bountiful harvest. In just two and a half years, we’re beginning to build real wealth. |
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Today is a great day to plant the seeds of your financial future. Here's how.
But we’re also making a change – the first change in the history of the Blockchain Believers Portfolio: we’re selling XRP from the fund. Here’s why.
The Case Against Ripple
Just before Christmas, the U.S. Securities and Exchange Commission surprised Ripple Labs, the creators of the XRP cryptocurrency, with an early holiday gift: a 71-page lawsuit alleging that XRP is not a decentralized blockchain investment, but an unregistered security. (Read the full document here.)
In plain English, the question is: should we consider XRP a stock? Is it part of the stock market (like Apple and Tesla), or a part of the block market (like bitcoin and Ethereum)?
If it’s stock, it must be registered as a stock, which Ripple hasn’t done. Because the legal status of XRP is now unclear, some digital exchanges are delisting XRP altogether – meaning it will be harder to find buyers, should you want to sell later.
The key question is this: Are investors buying XRP hoping that its value will go up, based on the efforts of Ripple?
The common-sense answer to that is yes. We buy all these blockchain investments (and indeed, any investment at all) in the hopes their value will go up, due to the efforts of others. That’s the very definition of an investment, and it’s why the SEC has a strong case.
But the SEC also has a strong case because it’s a strong case: the brief is exceptionally well-written, avoiding all the convoluted descriptions of blockchain that plague this industry. It’s clear and cutting, and so far, all Ripple has managed to provide for a response are a couple of tweets.
In the world of blockchain, perception dictates reality. The SEC has now framed public perception -- and thus, reality -- in a way that will be very hard for Ripple to undo, especially now that lawyers will be monitoring their every word.
The SEC won on the communication front with a game point smash. But I do not feel their case itself is a slam dunk, and here’s why. |
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The Case For Ripple
Ripple was one of the first companies we covered here at Bitcoin Market Journal, and I personally oversaw the first Analyst Report, which you can still download here. We interviewed the Ripple team members, and were impressed with both their brilliance and their belief that XRP was a new kind of payment system.
In simple language, XRP is a real-time payments system that allows banks and financial companies to quickly make large transactions, especially between countries. It converts your money (say, dollars) into XRP, quickly settles the transaction on a blockchain, then converts back to the new currency (say, euros).
When you look at what XRP actually is, you see that the case is not so clear-cut: it’s not like XRP is buying stock in Ripple. XRP really is a payments network. And it’s a payments network that is much better and faster: today, even “instant” wire transfers can take up to three days.
That said, there is no doubt that most average investors buy XRP as an investment, not to make cross-border remittances. So, XRP is something new: it’s a little bit stock and a little bit payments. It’s a little bit country and a little bit rock and roll. |
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Here’s a way forward for Ripple, in order to settle with the SEC: Register Ripple as a publicly-traded company, offering legal XRP stock. (As an olive branch, offer free shares to everyone who has owned XRP cryptocurrency, as Uniswap did with UNI last year.) Create a new token called XBP (which stands for Cross-Border Payments) that takes the place of XRP. It should only be available to institutions that use it for payments, not retail investors. Denominating this in USD would probably be a smart political move. Pay whatever you have to pay to settle with the SEC.
With these three steps, Ripple will allow the SEC to have a victory, it will become a publicly listed company, and it will legitimize its payment network. More importantly, the XRP-XBP relationship will successfully bridge the gap between the stock market and the block market. And that will be good for everyone.
The Good News About the Lawsuit For years, the blockchain industry has been asking for “regulatory clarity.”
Now, we finally have it.
By going after XRP, the SEC has now drawn some helpful lines in the sand.
If you are a U.S.-based, centralized company offering a digital token to everyday investors, you are likely to be considered a security (translation: treat it like a stock).
If you are a decentralized digital asset, you are not likely to be considered a security. Bitcoin is likely safe: it’s fully decentralized, so how would the SEC shut it down? Likewise, Ethereum is likely safe, as ETH is a “specialized instrument for a particular computer network” (see p. 60).
We asked for regulatory clarity, and now we have it. By going after the highest-profile target -- XRP was literally #3 on the leaderboard -- the SEC has made the biggest example they can. The lines are now brighter. This is good for the industry, and great for investors. Back to Basics
There’s one more reason for selling XRP: it hasn’t made any money.
When we began our fund in September 2018, the price of XRP was $0.34. For most of the time since then, it’s traded below that range. If this is a next-generation payments network that will replace everything banks are using today, we’d expect demand to increase, and thus the price to go up.
The Bitcoin Market Journal team has been deeply divided on XRP over the past few years: it’s low on our Digital Assets rankings page, where it gets only 3.5 stars. As of Jan. 1, 2021, we have officially removed it from our Blockchain Believers Portfolio.
The reasoning is simple: it’s currently too risky for most average investors, even at the tiny percentage we have given it in our do-it-yourself fund. Paradoxically, much of the risk comes from the SEC itself: with this lawsuit, it has made it harder for average investors to buy and sell the token.
Instead, our “Big Believers Portfolio” (the only portfolio that held XRP) will now shift those holdings to ETH like so: |
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Paradoxically, the SEC has also strengthened our belief in blockchain. We are finally getting regulatory clarity -- and as we’ve often said, with clarity comes prosperity.
If you’re just joining us on this journey into blockchain investing, it only takes a few hours to set up a monthly plan that you’ll be able to enjoy far into the future. You can start with any amount. And over the long term, we hope that you will enjoy both clarity and prosperity. |
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| Health, wealth, and happiness, |
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| John Hargrave Publisher Bitcoin Market Journal |
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Hi Everyone,
On a webinar yesterday, a question came up that really made me think.
"Mati, do you think that you're able to outperform holding bitcoin?"
The inquiry came up on the box, but I really had no idea how to answer. Lucky for me, this particular inquiry was not read out loud for me to answer, because I was stumped.
Removing myself from the picture for just a moment, we can see that this question really goes to the heart of the decades-old investment debate between an actively managed portfolio or sticking your money in an index fund to let it appreciate.
There's certainly ample evidence to support both sides, so we'll not go too far down that rabbit hole in this brief Friday note.
The short answer, in my humble opinion, is that it will largely depend on the specific time frame of the investment, but even with an element of skill and luck, only a few asset managers are able to outperform at this level for any extended period of time.
In the crypto markets, the task is immensely more difficult because the benchmarks are so much larger. Bitcoin returned 305% in 2020.
Even if my ego were the size of Texas, I wouldn't imagine that to be something that would be reasonably beatable.
The performance I had in my high-risk eToro account in 2020 came to a total of 101%, which is well below the benchmark, but still an outstanding yearly return by any standard, so I'm incredibly content with this.
As noted above, the answer will largely depend on the time frame being examined. In 2018, for example, it wasn't difficult to outperform a 100% BTC hodl account, which would've seen a loss of 80% that year. During that year it was certainly advantageous to have a portfolio that contained other assets.
So, to answer the question from yesterday's chat: I can certainly try.
Wishing you an amazing weekend. |
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Mati Greenspan Analysis, Advisory, Money Management |
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